Posted April 1999
Special: The first mile of connectivity
Integrated rural development through telecommunications
By David F. Barr
In countries all around the world, the telecommunication industry is undergoing restructuring, usually with a visible sense of urgency. Why is this occurring ? First, it is increasingly evident that telecommuni-cations and economic development are very closely linked. Intuitively, this seems logical. Scientific investigation and analysis has confirmed that the correlation between telecommunications and economic development is very high.
Second, the telecommunication industry in many countries is under-going restructuring because it is now widely realized that the old, rigid "government telecom monopoly model" meets neither the communicating public's needs nor the country's national policy objectives. Under this model, telecommunication services are delivered by a government department run on civil service lines, with political masters and at tariffed rates which are arbitrarily set based on policy and political judgement, without reference to cost structures and commercial reality.
The greatest challenge for developing countries is to ensure that telecommunication services, and the resulting benefits of economic, social and cultural development which these services promote, are extended effectively and efficiently throughout the rural and remote areas - those areas which in the past have often been disadvantaged, with few or no telecommunication services.
These rural and remote areas will in fact benefit most from the advent of telecommunications, because alternative methods of passing information are more costly and difficult than in densely populated areas. As a result, without telecommunications the information is either not put forward and the value of it is lost, or it is put forward in some other way, at greater cost or with delay or both.
The telecommunications industry - inherently commercial
It is now well recognized that the telecommunication industry is inherently commercial in nature. The provision of good telecommunication services is an enterprise which can and should be profitable in its own right. Especially in the rural and remote areas, it provides a valuable and vital stimulus for economic growth, and also for social and cultural development.
To release this inherent commercial vigour, some structural adjustment is often necessary. It is important to separate responsibility for: i) establishing national telecommunications policy; ii) for regulation of the industry; and iii) for the actual provision of telecommunication services to customers. Responsibility for national telecommunications policy and regulation of the telecommunications industry continues to be a government responsibility.
Experience has shown that the provision of telecommunication services is carried out most effectively on a commercial basis. The actual ownership of the service providing organization may be the private or public sector, or ownership may be joint. The important thing is that the organization operates, and is judged, as a commercial enterprise.
Experience in many developing countries has shown that the actual operational provision of telecommunication services can often be made substantially more effective and valuable by selective liberalization. The objective of liberalization is to enable and encourage organizations which provide telecommunication services to think and act as business ventures, seeking always to minimize cost and mazimize revenue, to respond quickly and economically to customers' needs, both expressed and anticipated, and to promote the use of the services that are offered, especially those that are the most valuable to the users and profitable to the service providers.
To seize and take advantage of the economic opportunity that telecommunications brings to developing countries, the essential requirement is that the service providers should think and behave with an entrepreneur's mindset, not that of a civil servant.
Telecommunications - the "engine" of integrated rural development
These days, appropriately, the emphasis in considering rural telecommunications is very much on "applications" - how the telecommunication services will be used, and how, in turn, this usage will benefit the citizens of the region served. Experience indicates that the introduction of sufficient quantities of modern tele-communication services in previously unserved or underserved rural and remote areas stimulates economic development, social development, and cultural development. How and why does this stimulus occur ?
Telecommunications enables a whole range of commercial functions to be carried out quickly and easily, functions which previously were at best slow and costly, and at worst could not be carried out at all. Functions now made easier include finding markets for farm produce, fisheries catches and handicraft products, negotiating prices and quantities, arranging for pickup and delivery, and so on. On the input side of commercial enterprises, telecommunications facilitates such functions as arranging for the required factors of production (e.g., obtaining supplies of all sorts, including both raw materials and production tools) and making arrangements with and for workers. On both the input and the output side of commerce, telecommunications makes it much easier to follow up on contracts, and explore potential business development opportunities.
Telecommunications makes it possible to obtain and to distribute information of all sorts. Databases and other information sources can be accessed, providing information, amongst many other things, on distant markets, market and consumption trends, and future markets.
Detailed information regarding "best practices" methods and techniques can be made available, to the great advantage of agriculture, fisheries, and cottage handicraft industries. The widespread distribution of detailed, well-substantiated "best practice" methods and market information has proven to be very valuable over many years in the steady and continuing improvement of agricultural productivity in North America.
Telecommunications brings the ability to carry out all sorts of transactions electronically. This includes financial transactions (e.g., making bank deposits, paying bills, and obtaining cash) and also information-type transactions (e.g., arranging to obtain licenses of all sorts). The flow of information in the reverse direction also brings value. The government and other appropriate organizations can now obtain census-type and other statistical information electronically, and, as a result, can improve the quality and timeliness of decision-making and delivery of services.
Tourism is a commercial area which is just not feasible without adequate telecommunications, which are essential in developing the business, in promoting it, and in making the reservations and detailed arrangements that this industry requires. Experience indicates that potential tourism customers refuse to go to areas where "reasonable" telecommunications are not available. Tourism is a rapidly expanding industry worldwide, and offers a significant commercial opportunity for many developing countries.
Educational opportunities can be greatly expanded by tele-education, or "distance learning", techniques. There are examples of educational programmes available through telecommunications, that embrace the whole range of education from primary school to university. For many of the residents of the rural and remote areas of developing countries, this capability has the potential to open a broad spectrum of new educational possibilities. In educational applications, a variety of technologies can play a role. Often, the transmission arrangement is asymmetric, the transmission medium providing both images and voice from the teacher to the students, with only voice response from student to teacher. Pedagogically, this arrangement has been found to work well.
Telemedicine is an active and expanding field. Good quality data service capability is necessary so that medical readings and records and files can be transmitted reliably. Now, instead of having to move either the patient to the doctor or vice versa, it becomes possible to move only the relevant medical information. As well as direct patient care, experience has demonstrated that valuable telemedicine applications include in-service coaching and training of remote-located health care staff.
In embracing an entrepreneurial approach to the provision of telecommunication services, the promotion of services, in particular the high revenue/high margin services, is an important opportunity to be pursued. International long distance calling, which has been increasing dramatically worldwide for several years, is an important and profitable example. The experience of many developing countries indicates that there are significant numbers of expatriates who are living in other countries who want to keep in touch with, the family and friends that they have left behind in the rural villages.
Nor is it necessary for these calls to be paid for by the citizens in the rural and remote areas. International "country direct" services, such as the "Canada direct" service in many developing countries, make it easy for calls from the villages to be made at the expense of the person receiving the call. In fact, "international call me" service is available in Canada, through Teleglobe Canada, providing automatic preauthorized "collect" calling to the "expat" who has equipped his family member or friend in the home country with the appropriate "call me" card.
Telecommunications - the cornerstone of safety, security and good governance
Telecommunications makes possible timely and effective communication between the rural population and government departments and agencies, in ways that were previously not possible. Telecommunications makes it possible for the government to warn of impending natural hazards, for example hurricanes. If and when disasters occur, the government is able to quickly provide appropriate aid with maximum effectiveness and with economy of effort, because it is now possible to determine with precision the necessary kinds of aid, to be brought to precisely where it is needed.
Less dramatic but actually of greater value is the ongoing non-emergency communication between government organizations and the rural and remote areas. In the environmental field, for example, information about good environmental practices can be provided to the citizens, and they, in turn, can notify the central organization of possible adverse situations so that these situations can be dealt with before they become a problem.
Effective communications is a vital tool in countering threats to personal safety and to national security. Such threats could come from the criminal element, or possibly even from terrorist organizations. Through telecommunications, the security forces can be notified and summoned, can monitor events as they unfold, and can take appropriate action to enforce the rule of law.
Telecommunications play an important role in democratic processes; for example in elections. Information about the election is distributed throughout the rural areas. Those responsible for managing and supervising the electoral procedures do this using telecommunications. Local election results are reported to central locations via telecommunications, and overall national election results flow back the other way.
The advent of telecommunications in the rural and remote areas provides an opportunity to extend to these areas government services and capabilities that previously were not provided because of prohibitive costs. This government usage of the newly available services, charged and paid for at established or negotiated rates, will provide a valuable "baseline" of traffic and revenue to the service provider. Telecommunications makes it possible for developing countries to afford to improve the quality of governance, especially in the rural and remote areas.
Delivery of telecommunication services in the rural and remote areas
It has been found that the practical and economically viable way to deliver telecommunication services in the rural and remote areas of developing countries is by providing a group of lines that provide access to the telecommunication services at a convenient central location within each rural community. This approach is experienced based and commercially driven. The upkeep costs, operations and maintenance, of isolated loop (or access) networks are high, since these networks have above-average trouble experience and repair visits are time consuming.
It is now generally accepted that "universal access" to telecommunication services is an appropriate goal in the rural and remote areas of developing countries. This view is reflected in the current thinking and in the current papers, presentations and recommendations of the Development Sector of the International Telecommunication Union (ITU) and its members.
The location at which the services are provided is often called a "public call office" (PCO). It is important that the PCO provides sufficient lines to fully meet the need for both inward and outward calling. This, too, is commercially driven. The old rallying cry of "one pay telephone in every village!" is politically attractive but not commercially viable. The first line in the village is very costly, whatever the technology chosen, and really does not provide access for the residents. For twice the investment, a dozen or fifteen lines can be provided, bringing in ten times the revenue and providing good to excellent access, with a positive business case.
The service provider's goal is to maximize revenue earned in the community. Since charges (revenue) are based on usage, long calls should be encouraged. A line of people waiting to obtain a line is a clear sign of inadequate provisioning. Also, inward calls, generally originating in another country, are a valuable source of revenue. An event that should never happen is that an international call progresses all the way to the rural village, and then finds no line available to complete the connection.
The PCO should provide appropriate value added services to meet the needs of the community. These could include messenger service upon receipt of inward calls, voice messaging (a "virtual" telephone line), sending and receiving faxes, and public e-mail. It is also important that this facility, or appropriate portions of it, should be available at all hours of the day and night, not only during normal business hours. To ensure this, it will usually be necessary to provide telephones that make use of debit or credit cards.
Other advantages of centralizing the telecommunication services in the community include ready support for users in using the service (e.g., how to dial an international call), at least some basic maintenance capability, ease of ensuring the security of both the service and the equipment, and easy provisioning of the required power. Last but certainly not least, charges for service usage can be collected on the spot, and debit cards can be sold in advance of the actual usage.
As the needs of the community warrant, more capability and capacity must be added. This could well include transaction capability, both financial (banking) and data oriented (licensing), and the ability to access remote databases. Not specifically a telecommunication service but related to it, copying capability and the provision of personal computers (PCs) equipped with modems to enable data transmission for hire will be valuable assets. Audio conferencing, perhaps with the ability to also transmit text-type material, and eventually video conferencing, will fill out the portfolio of offered telecommunication services.
The location at which advanced services such as these are offered is often called a "community teleservice centre" (CTSC), or "multipurpose community telecentre" (MCT). Whatever it is called (and it is the capability, not the name, that counts), it is important that the centre fully meets the telecommunications needs of the community that it serves, and that it is accepted, embraced and used by the community as a valuable community resource. Experience in many countries suggests that a gradual and orderly process of evolution from PCO to MCT is normal and desirable. The PCO/MCT constitutes a small and growing local commercial operation, providing some local employment. Experience suggests that a good organizational approach is for the service provider to franchise PCO/MCT operation to a local entrepreneur in each community.
Principles for providing telecommunications in the rural and remote areas
There continue to be substantial areas of many countries with little or no telecommunications to serve the inhabitants. Noting that telecommunications is inherently a commercial enterprise, and a potentially profitable one, and recognizing the close linkage between telecommunications and economic, social and cultural development, high priority should obviously be given to providing good telecommunication services where they are not now available.
Recent experience, and the extensive investigation carried out by Study Group 2 of the Development Sector of the ITU, indicates that the provision of telecommunication services should and generally can be profitable in the rural and remote areas of developing countries.
Five key "principles" have been defined, which, taken together, have been found by experience to provide the appropriate framework for creating a profitable, and hence sustainable, telecommunications network and portfolio of telecommunication services in the rural and remote areas of developing countries. It is important to note that these principles address the rural and remote areas of a country in total. The business opportunities will clearly be more attractive in some rural areas than in others. However, application of these principles across the entire rural and remote area of a country will generally result in a network and portfolio of telecommunication services which are profitable across the rural and remote area in total.
The African Regional Telecommunication Development Conference held in Abidjan, Cote d'Ivoire, in May, 1996, resolved to support these principles as a basis for providing telecommunication services in rural and isolated areas. The Arab Regional Telecommunication Development Conference held in Beirut, Lebanon, in November, 1996, also resolved to support these same five principles, described and discussed below.
Access to telecommunication facilities and services will be provided at a convenient central location in each community. The portfolio of services offered will meet the needs of the community. Both the types and quantity of services offered will increase as demand grows, and new applications and opportunities emerge.
Rural telecommunications programme
Rural telecommunications will be introduced through a carefully planned, well-structured and managed, rigorous and orderly multiyear programme. Experience indicates that this approach will obtain the lowest prices and the best support from vendors of network systems and equipment. Also, as the programme progresses, the operator's personnel will gain valuable experience and will "move up the learning curve". As a result, the programme will become progressively more effective and efficient, and internal costs per line added will drop dramatically.
This approach offers the opportunity to negotiate substantially lower equipment prices. The required support arrangements, e.g., tools and test sets, training the operations and maintenance staff, and provision of maintenance spares, become a much smaller proportion of the total cost.
For obvious commercial reasons, the programme should start in those rural areas which are expected to have the greatest service demand, and to be the most profitable. The prospectively "least profitable - highest loss" areas will be served last. As effectiveness and efficiency improve, the costs of network extension will go down, probably dramatically. These last areas will be served when the programme expertise is highest and costs are a minimum. As a result, these areas may in fact prove to be profitable. If they are unprofitable, they will be only marginally so.
Experience indicates that the successful planning, organization and management of the rural telecommunications programme is a very important factor in creating a cost-effective rural telecommunications infrastructure that provides a service which can be priced low enough to be widely used, and hence valuable to the residents, and yet is profitable and sustainable.
An appropriate regulatory framework will be required, which creates the necessary terms and conditions to promote the initial provision and continuing sustainability of the rural service. A firmly enunciated "universal service obligation" (USO) of the service provider, to serve the rural and remote areas and defining how the obligation will be measured, is usually necessary. Conditions addressed by the regulatory framework will certainly include interconnection and revenue settlement. The revenue settlement arrangement should be based on legitimate causal costs. Simple schemes such as "sender keeps all" typically disadvantage the rural service provider substantially, and for this reason are not satisfactory.
The regulatory agency must monitor the sustained availability, quality and financial viability of the rural service, preferably through aggregated versions of the same indicators that the service provider uses for his own internal management requirements.
Despite the service provider's best efforts, a modest subsidy may be appropriate in fulfilling the universal service obligation. The subsidy should be as low as is consistent with ensuring the continued sustain-ability of the rural service. The operator's success in pursuit of com mercial principles is a key factor in minimizing the level of support.
It is quite clear, in the financial context of 1998, that there are only two substantive sources of funds for investment in rural telecommunications programmes. These are the service provider's own internal funds, and funds from private sector investors, including individuals and organizations, both national and international.
It is important that funds that are already in the service provider's hands (e.g., from depreciation charges or from retained earnings) should be permitted to remain in the service provider's hands, for reinvestment in the network. This may require changes in legislation at the national level; for example, to encourage investment in the network, the government may very wisely specify that earnings will not be taxed if they are reinvested in the network.
For investment funds to be forthcoming from potential private sector investors, it is essential that the rural telecommunications network must be expected to be, and in practice must be seen to be, a profitable enterprise.
A commercial approach
The final principle underlies the other four. The rural telecommunications network must be operated as a commercial, entrepreneurial, profit-focused and profitable enterprise. It is this "mind set" that will motivate the service provider to continually seek to maximize revenues and minimize costs. There are many opportunities to do this. The service provider's success will be directly reflected in minimizing the amount of subsidy that is needed to support the USO.
Sustainable, profitable service - continuing commercial management of operations
As telecommunication services are progressively provided throughout the rural and remote areas, the commercial challenge is to operate the network and the services effectively, efficiently, and profitably. The PCO/MCT approach to providing telecommunication services is well suited to a franchise operation. The franchise technique takes advantage of the "intersection" of an orderly, effective, well-proven "system" with the personal service and value of the small local entrepreneur.
Franchise operations, of which McDonalds Restaurants is the classic worldwide example, provide a well tested and established, clearly enunciated supportive framework of operational terms and conditions. In the rural telecommunications context, this would include such things as hours of business, general physical arrangements (e.g., provision of appropriate privacy for customers, through telephone booths or equivalent), a standard franchise agreement, standard (and effective but not onerous) financial accounting and reconciliation arrangements, and standard operations and basic maintenance procedures for the telecommunications equipment.
Within this supportive framework and set of guidelines and practices, the franchise holder adapts the operation to best meet the needs of the residents. The franchise holder is a local resident, and hopefully is viewed as a helpful and dedicated pillar of the local business community. He or she benefits financially by operating the franchise effectively.
Motivating financial arrangements, for example payment to the franchise holder based on percent of revenue, are typical of franchise operations, and are very suitable. As noted above, there must be appropriate revenue, including the percentage for the PCO franchise holder, associated with terminating inward calls. This will encourage "doing whatever it takes" (messenger service, in-village paging, voice message service, etc.) to complete inward calls successfully.
Effective franchise operation involves continuing, detailed results-oriented management of the franchise holders by the franchise granting organization. This includes the use of quantitative "key indicators" to compare locations and franchise holders. Examples of "key indicators" that would be useful in managing the group of PCO/MCT franchise holders serving the communities of a rural area could include:
Ongoing capture and regular (typically monthly) publication of appropriate comparative statistics, at the PCO/MCT level, and circulation of this information to the franchise holders as well as within the franchise granting organization, will go far to both guide and encourage franchise holders to manage and improve their own operations. The franchise grantor's ongoing commercial management of the franchise operation will take action which will develop "best practices" information based on the successes of the best PCO/MCTs, and focus on moving the results of the worst locations and franchises towards those of the best.
The world of modern telecommunications offers great opportunities for developing countries. Because this industrial sector is inherently commercial in nature, and is potentially profitable, telecommunications can be introduced and/or upgraded at no cost to the public purse. It is clearly established that good telecommunications have a direct positive relationship with economic growth, and also with social and cultural development.
This developmental advantage provided by telecommunications is particularly evident in the rural and remote areas. Five principles that have been found to be of great importance in implementing rural telecommunication programmes are:
The ongoing commercial management of operations is of great importance. No matter how well the rural telecommunications network is built, commissioned, and put into service, the only true value comes from its continuing successful and profitable - and hence sustainable - operation. The ongoing operation should serve the inhabitants of the rural area so as to provide substantial value to them, and also provide good revenue both for the service provider and the operators of the PCOs/MCTs in the villages.
Modern telecommunications make distance transparent. There are exciting commercial opportunities in developing countries which are made possible by telecommunications. Examples include a software-producing industry creating computer software for inclusion in developed country software products, and establishing the "back room functions" (order processing, record keeping, etc.) of financial institutions in another country.
Efficient, high quality telecommunication services are an essential component of modern life. Happily, this industry and these services are inherently profitable, and can be put into place with private sector financing. The payoff in terms of economic, social and cultural development can be very substantial. The advantages are greatest in the rural and remote areas, which have traditionally been the areas that have been worst served, in terms of access to telecommunication services. Telecommunications is a vital "engine of production," driving economic, social and cultural development, and generating a profit for the service providers at the same time. Developing countries should be quick to take advantage of the growth opportunity that telecommunications makes possible.
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